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Investors scramble for tax free options before potential CGT hike

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UK investors are scrambling to find tax free homes for their money ahead of the Labour party’s first budget scheduled for 30 October. One immediate option is the use of ISA wrappers with investors looking to maximise their allowances this year.

There has been a surge in retail investors making use of ISA allowances, with 43% more investors have maximising their annual tax-free ISA allowance of £20,000 as of 30th September 2024, compared with the same period last year. This is according to ETF fund manager Vanguard, which also said 42.8% more clients have maximised their annual tax-free SIPP (Self-Invested Personal Pension) allowance of £60,000 as of 30th September 2024, compared with the same period last year.

Vanguard told us that the surge in the number of clients maximising their tax-free allowances in advance of the October Budget is reflective of investor behaviour usually seen in February and March in the rush to beat the tax year-end (5th April). This suggests that speculation about still unknown and unconfirmed tax changes in the upcoming Autumn Budget is driving investor behaviour.

Why are investors using their ISA allowances early?

Vanguard said its clients are responding to speculated capital gains tax rate rises, potential changes to ISA lifetime allowances and rumoured UK pension reforms, including a cut in tax relief on pension contributions for higher earners and reductions in the amount of tax fee cash that can be taken from pensions on retirement.

“If Budget speculation is encouraging people to think about their finances, this is not necessarily a bad thing. However, knee jerk reactions, in any circumstance, are best avoided,” the fund manager told us.

Maxing out tax-free allowances for those with the cash to spare is one consideration for individuals looking to mitigate potential Budget tax changes, but this won’t be the best strategy for everyone. Vanguard is urging clients to consider their individual circumstances before making decisions about their investments, in particular reminding themselves of their investment timeline, when they will need access to the funds, and ultimately the goals they’re looking to fulfil with funds saved and invested.

James Norton, Head of Retirement & Investments at Vanguard Europe, said: “There is a high degree of uncertainty about tax changes ahead of the Autumn Budget and we’ve been warned of some potentially painful outcomes for individuals. While this can feel daunting, savers and investors should not let speculation cloud their judgement – maintaining clear goals and a long-term investment perspective will continue to be crucial in setting you up for future success.”

Irrespective of changes announced or not announced on 30th October, Norton said now is as good a moment as ever to check how much you’re saving each month, whether you’re investing tax-efficiently and if you’re on track to reach your ambitions. Tax-wrapped products will continue to be a critical component of a long-term savings plan. It may be worth considering spreading investments across a of accounts – including ISAs and pensions – to reduce some of the risk that tax laws, as well as personal circumstances, can change.


However, snap decisions should be avoided. Maximising the tax-free allowance right now will not necessarily be the right strategy for everyone. Investment timelines must be taken into consideration. Remember, savings put into a private pension cannot be accessed until later in life and even then, the tax implications of pension drawdown must be considered.

Investors should take comfort that using tax wrappers wisely, keeping costs as low as possible, investing in a globally diversified portfolio and tuning out the noise, has proved to be a recipe for success for long-term investors, even when there are shorter-term headwinds.

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Hargreaves Lansdown IG Interactive Brokers Interactive Investor Charles Stanley
IG Interactive Brokers Charles Stanley

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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